Emaar Properties (EMAAR.DFM) Country: United Arab Emirates Current Market Price (AED) 12.15 Exchange: Dubai Financial Market YTD Stock Performance % -18.5% Outstanding Shares (In million) 6,091.24 Sector: Construction & Real Estate; Service Market Cap (AED Million) 74,008.55 Local Ticker: EMAAR EPS (AED) 1.08 P/E 11.26 Reuters Code: EMAAR.DFM BVPS (AED) 6.00 P/B 2.03 DPS (AED) 0.20 Dividend Yield (%) 1.6 Investment Opinion: OVERWEIGHT Last traded Price: AED 12.15 (as on March 12, 52-week High (AED) 15.85 52-week Low (AED) 9.75 2008) Source: Dubai Financial Market, Zawya.com Fair Value: AED 18.27 Products & Services: Real estate investment, development and property management; health care; education; leisure; retail; hospitality; Financial services. Share Price Movement EMAAR vs. DFM Established in Dubai in 1997, Emaar Properties (Emaar) is a powerful global brand name involved in real estate development. The country’s plan to spend over USD 1 trillion on leisure projects provides huge opportunity for real estate developers. Emaar’s two-pronged strategy – geographic and business segmentation will further enhance its revenue growth. On February 12, 2008, the company proposed a 20% cash dividend for the year 2007. Over supply of property units in Dubai is expected to continue until 2010; this may negatively impacting the company’s top-line. Offsetting Emaar’s growth drivers against risk factors, we raise our 12-month price target to AED 18.27 from AED 16.60, while reiterating our OVERWEIGHT recommendation on the stock. Call us on +973 17549485 or email us at [email protected] Background Established on June 23, 1997 as a public joint stock company, Emaar Properties is one of the world’s Among the world’s largest largest real estate companies. The company is primarily engaged in property investment and real estate companies. development, property management services, education, healthcare, retail and hospitality, as well as investment in financial service providers. Driven by its ‘Vision 2010’ to become one of the most valuable companies in the world, Emaar is formulating a new course of growth with a two-pronged strategy - geographical expansion and business segmentation. It has established operations in 17 markets to date. Listed on the Dubai Financial Market on March 26, 2000, Emaar is also a part of the Dow Jones Arabia Titans Index and S&P IFCG Extended Frontier 150 Index. The company is now looking to list shares worth USD 40 billion on the London Stock Exchange. Emaar has strengthened its product sale competencies, market reach and best practices through strategic acquisitions and joint ventures. In 2006, it acquired John Laing Homes, America's second largest privately held home builder, and Hamptons International, UK's premier realtor and property management consultant. It also formed a joint venture with the US-based Turner International to Forays into various sectors. strengthen execution capabilities. In addition, it continues to diversify its presence into other sectors such as education, healthcare and hospitality. It acquired Singapore-based Raffles Campus, a premier education provider through its subsidiary Emaar Education. Emaar teamed up with Giorgio Armani and Accor Hotels to strengthen its presence in hospitality and will launch ten luxury Armani Hotels & Resorts world-wide and 100 Formula 1 budget hotels in India. Further, in October 2007, it entered into a joint venture with Tatweer's Bawadi to develop a USD 16 billion (AED 60 billion) project as part of Bawadi's massive hospitality development in Dubai land. In the same month, Emaar agreed to build four residential and leisure projects around Algiers worth USD 20 billion. Between 2001 and December 31, 2007, Emaar has handed over 21,000 residential units to customers. As of August 31, 2007, the company’s land bank comprised 504.9 million square meters including the joint venture with Bawadi, but excluding Algeria. On July 10, 2007, Moody's Investors Service assigned Emaar a long-term foreign currency rating of 'A3', a long-term local currency rating of 'A3', with a ‘Stable’ outlook. Standard & Poor’s assigned it an ‘A-‘. On March 5, 2008, Emaar won the Mohammed Bin Rashid Al Maktoum Business Award (MRM Award), launched by the Dubai Chamber of Commerce & Industry in the Real Estate Development category. The MRM Real Estate Business Development Award recognized Emaar's outstanding achievements in project management and execution, adherence to delivery schedules, and working in A number of corporate association with government authorities for infrastructure development. Further, it was chosen as the laurels. ‘Property Company of the Year' for the second consecutive year in 2007 at the Arabian Business Property Awards. It also won the Dubai Quality Award; the ISO 14001:2004 certification for its environment management processes; and the ISO 9001:2000 certification for quality management. It was also ranked in the Top 10 of Standard & Poor's (S&P's) IFCG Extended Frontier 150 Index for frontier equity markets covering constituents from 26 countries. For the year 2007, Emaar recorded a net profit of AED 6.58 billion compared to AED 6.37 billion in the previous year – up 3.2%. Consequently, basic earnings per share (EPS) increased to AED 1.08 from AED 1.05. Board of Directors Emaar’s Board of Directors comprises eight members. H.E. Mohamed Ali Alabbar is the Chairman and of the company and Mr. Hussain Al Qemzi is the Vice Chairman. The rest of the board members are: Name Designation Chaired by H.E. Mohamed Mr. Ahmad Jamal Jawa Director Ali Alabbar. Mr. Salem Rashed Al Mohannadi Director Mr. Mohammed Ibrahim Al Shaibani Director Dr. Lowai Mohamed Belhoul Director Mr. Majid Saif Al Ghurair Director Mr. Ahmed Thani Al Matrooshi Director Major Shareholders and Affiliates Emaar is primarily a publicly held company with the majority stake of 68% held by the public. The A publicly held company. balance 32% stake is with the Investment Corporation of Dubai. Foreign ownership is restricted to 49% of the share capital and is open to both GCC as well as foreign investors. Shareholding Pattern 32% 68% Investment Corporation of Dubai Public Emaar, in turn enjoys holdings in a number of companies that operate across various sectors. These are: SUBSIDIARIES / ASSOCIATES / AFFILIATES COUNTRY % SHARE Arabian Ranches UAE 100.00% Emaar Dubai UAE 100.00% Emaar Education UAE 100.00% Emaar Healthcare Group UAE 100.00% Emaar Hospitality Group UAE 100.00% Emaar Hotels and Resorts UAE 100.00% Emaar International UAE 100.00% Emaar International Jordan Jordan 100.00% Emaar Investment Holding UAE 100.00% Emaar Malls Group UAE 100.00% Emaar Misr for Development Company Egypt 100.00% Emaar Morocco Offshore Morocco 100.00% Emaar Syria Syria 100.00% Emaar Towers UAE 100.00% Emirates Living UAE 100.00% Hamptons International Holding United Kingdom 100.00% WL Homes [John Laing Homes] United States 100.00% The Industry Scenario The UAE’s real estate sector has become the centerpiece of the economy, driven by rising population, huge inflows of expatriates, and legal and financial deregulations by the government. According to the Ministry of Economy, the country posted real growth at 16% in 2007 over 9.4% in Real Estate - the centerpiece of UAE’s 2006, with gross domestic product (GDP) reaching AED 698 billion. The non-oil sector accounted for economy. 65% of the total GDP, while oil contributed 35% in 2007. The economy is anticipated to grow by a further 6.6% this year. Simultaneously, a recent study, conducted by the Research Unit at Mashreq Bank, in conjunction with the Macroeconomic Research Centre, projected the country’s population to hit 6.88 million in 2011, as compared to 5.19 million in 2007. Dubai alone is anticipated to attract over 50% of the new expatriates. During 2007, the real estate sector contributed 8% to the country’s GDP with an investment of AED 25.8 billion. In addition, AED 23.1 billion (16% of total investment) was pumped into the development of infrastructure, including airport expansions, internal and external road networks, bridge and tunnel constructions and communications. According to the Ministry, real estate and construction are anticipated to be the key drivers of economic growth in 2008 as well. The sectors are predicted to grow by 24.4% and 21.6% respectively by 2010, thereby together contributing 23% to the country’s economy in comparison with 16% in 2006. As of now, oversupply of completed units is the biggest risk in the UAE. It is estimated that this problem will continue through 2010 in Dubai and beyond 2010 in Abu Dhabi. Assuming that the UAE maintains its existing currency peg for the next 12 months, research firm Al Mal Capital anticipates Oversupply - the sector’s rental yield to decline over the next four years on the back of real estate price appreciation. Currently, bane. the average rental yield in the UAE stands at 7.7%, which is higher than that of countries with similar income levels. By the end of 2008, the average price of residential property is expected to increase to AED 1,800 per square foot from AED 1,400 in 2007. Price appreciation is anticipated to be around 28% in 2008. However, it is forecast to slow down to 17% in 2009, as more supply is delivered. Dubai is the largest spender on leisure projects in the Middle East, followed by Saudi Arabia and Abu Dhabi. Real estate projects in Dubai are anticipated to reach USD 310 billion over the next decade, out of which USD 230 billion will be in the property sector. Across the region, more than USD 1 trillion Plans to invest USD 1 is being pumped into the leisure sector.